Treasury Inspector General for Tax Administration

Press Release

TIGTA Report: Taxpayers Who Qualified for Penalty Relief Did Not Receive It

WASHINGTON - The Internal Revenue Service (IRS) failed to inform about 1.45 million taxpayers that they qualified for relief from penalties totaling close to $181 million, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

The Internal Revenue Code imposes penalties on taxpayers with a filing requirement who fail to file a tax return or fail to timely pay the full tax shown on any tax return. The IRS waives these penalties for taxpayers who have demonstrated full compliance over the prior three years, but only if the taxpayers request penalty relief. The IRS does not widely publicize the opportunity to request this waiver, called a First-Time Abate.

The purpose for granting the First-Time Abate is to reward past tax compliance and promote future tax compliance. However, most taxpayers with compliant tax histories are not offered and do not receive the waiver, TIGTA found. For Tax Year 2010, TIGTA estimated that approximately 250,000 taxpayers with Failure to File penalties and 1.2 million taxpayers with Failure to Pay penalties did not receive penalty relief even though they qualified under First-Time Abate waiver criteria. TIGTA estimated the unabated penalties totaled more than $181 million.

"Penalty waivers should not be granted only to taxpayers or preparers with knowledge of IRS processes," said J. Russell George, the Treasury Inspector General for Tax Administration. "If the IRS does not administer these and other penalties fairly and accurately, taxpayers' confidence in the tax system will be jeopardized," he said.

Further, TIGTA found that the First-Time Abate waiver is not used to its full potential as a compliance tool because when it is granted, it is granted before taxpayers demonstrate full compliance by paying their current tax liability.

TIGTA recommended that the First-Time Abate waiver be better used as a compliance tool by ensuring taxpayers are aware of their potential to receive the waiver based on their past compliance history, and making receipt of the waiver contingent upon taxpayers paying their current tax liability.

In their response to the report, IRS officials agreed with the recommendations and are taking appropriate corrective actions. The IRS plans to study how best to use the First-Time Abate waiver as a compliance tool.

Note: The difference between the date TIGTA issues an audit report to the Internal
Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

A special plugin is required to view PDF documents. To obtain the free PDF reader, please visit the Adobe web site.